March 3, 2022 —
The Securities and Exchange Commission today announced that registered investment adviser City National Rochdale, LLC (CNR) has agreed to pay more than $30 million to settle charges that its undisclosed conflicts of interest defrauded current and prospective clients. The money CNR pays will be placed into an SEC Fair Fund for distribution to harmed investors.
According to the SEC’s Order, from at least 2016 through 2019, CNR, which has discretionary authority over client accounts, failed to inform its clients of its practice of investing their assets in proprietary mutual funds that generate fees for CNR and its affiliates, rather than in competitor funds whose fees may be lower. Additionally, the SEC’s Order finds that from at least 2016 until 2019, CNR failed to inform some prospective clients that they could invest in CNR’s proprietary funds at lower cost. Clients who opened accounts with certain CNR affiliates did not pay annual marketing or distribution fees, known as 12b-1 fees, but most clients who invested with CNR through their own financial advisors did.
“CNR’s failures to disclose its conflicts of interest deprived clients of their ability to make informed investment decisions while generating fees for the adviser and its affiliates,” said Melissa Hodgman, Associate Director of the SEC Enforcement Division. “When investors entrust their hard-earned money with an adviser, it is crucial they receive full and fair disclosures to allow them to understand and reject any conflicts of interest, and if the adviser does not abide by these rules, then the SEC will hold them accountable so we can return that money to investors.”
The SEC’s Order finds that CNR violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, CNR agreed to cease and desist from committing or causing any future violations of these provisions; be censured; provide notice of the settlement to affected advisory clients; retain an independent compliance consultant; and pay disgorgement, prejudgment interest, and a civil penalty totaling $30,361,803 that will be distributed to investors through a Fair Fund.
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Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.